SpaceX and the billion-dollar indexing dilemma

SpaceX has become one of the largest companies on the planet. Yet despite its size, it currently doesn’t qualify for inclusion in the US’s flagship stock market index, the S&P 500. Why?

All stock market indices have eligibility criteria which companies must meet in order to be listed on them. These include the size and value of a business (the market cap of a company), as well as having a minimum number of their shares available to be traded publicly.

With a market value just under $2 trillion, SpaceX is one of the 10 most valuable businesses globally. However, only around 7.5% of its shares are publicly trading, and the company is yet to achieve profitability, so SpaceX does not meet the eligibility criteria for some stock indices.

Yet in many ways SpaceX is no ordinary company. Its scale, profile and the level of investor interest surrounding its listing make it difficult for index providers to ignore. This has created an awkward dilemma for stock index providers. Should they stick rigidly to their rules, or change them to reflect the reality of today’s market?

If SpaceX entered the S&P 500 at roughly a 4% weighting, funds tracking the index could be forced to buy billions of dollars’ worth of SpaceX shares almost overnight. That buying pressure could push the share price higher still.

What are the benefits of index membership?

Getting into a major stock market index can be a game changer for a company. It is not just a badge of honour – it can attract new investors, increase demand for a company’s shares and even help boost its market value.

Stock market indices come in all shapes and sizes. Some track entire markets, such as the S&P 500 in the US or the FTSE 100 in the UK, while others focus on specific industries, countries or investment themes.

A handful of indices have become particularly important because they are used as benchmarks by fund managers and investors. These include the FTSE 100, the S&P 500 and the MSCI All Country World Index. When a company joins one of these high-profile indices, it can suddenly find itself exposed to billions of pounds of investor money.

Why does it matter to investors if indexes bend the rules?

Part of the appeal of major indices is that investors know the rules are applied consistently. Whether a company is popular or not, it is expected to meet the same standards as every other business before gaining entry.

That's why the SpaceX debate matters. If index providers make an exception for one company, investors may start asking where the line should be drawn. Yet if they refuse to adapt, they risk excluding some of the market's most influential businesses.

For index providers, the challenge is balancing consistency with keeping pace with a rapidly changing market.

Do SpaceX and other AI/tech giants raise or lower the index quality threshold?

In the US, much of the interest in the new listing (IPO) market is being driven by a small number of mega cap, AI-focused companies. Hot on the heels of SpaceX – and with little sign of slowing investor demand – are two other leading AI companies, OpenAI and Anthropic, who are expected to list later this year.

The sheer size of recent AI-related listings could reshape stock market indices. Investors may need to sell other holdings to make room for these new companies, creating ripple effects across the wider market.

Carlota Estragues Lopez, SJP's equity strategist, says the largest AI listings could be so large that they are "comparable to introducing a new sector into equity indices."

So should SpaceX be treated as a special case?

This is where it becomes more difficult for index providers. A “business as usual” approach would keep SpaceX out of many major indices until it meets requirements around profitability and spends longer as a publicly-listed company.

Taking this approach would ensure consistency for investors as many expect. The rules would apply equally to every company, regardless of its size or popularity.

However, there is a downside. SpaceX is already one of the world's largest companies. Excluding it means some indices may no longer fully reflect the shape of the market they are designed to track.

Some providers have already moved to address this challenge. FTSE Russell and Nasdaq have introduced fast-track rules that allow exceptionally large stock market listings to be added more quickly than under the traditional review process. Similar measures could be used for future mega-cap technology and AI companies.

Others have taken a firmer stance. S&P and MSCI continue to apply their existing requirements. For example, companies joining the S&P 500 must have been publicly traded for at least a year and demonstrate a record of profitability.

For investors, the debate comes down to a simple question: should indices prioritise consistency, or should they adapt to ensure the market's biggest companies are properly represented?

Summary

For now, index providers face a difficult balancing act. If they stick rigidly to their rules, they risk excluding some of the market's most important companies. If they bend those rules, they risk undermining the consistency that investors rely on.

As more giant AI and technology companies consider stock market listings, the decisions made over SpaceX could help shape how investment benchmarks evolve for years to come.